Square Inc. (SQ) Shares Surge +45 Percent on First Day

Shares of Square Inc. (SQ) were up +0.78 or +5.97 percent to $13.85 in Friday’s premarket after the company had its first day of public trading following its initial public offering yesterday. Shares for the initial offering were priced at $9 and traded as high as $14.78 before settling at $13.07, up +4.07 or +45 percent higher in Thursday’s regular trading session.

Founded in 2009 by Jack Dorsey, San Francisco, California based Square Inc. is a mobile payment and financial services company, as well as a merchant account provider.
Square Inc. offers software and hardware products for businesses to receive payments online, such as the Square Reader and the Square Register. The company has expanded its products to small businesses with Square Capital that extends credit to small businesses and a financing program called Square Payroll. The company currently offers merchants and individuals in the United States, Canada and Japan to accept offline debit and credit cards for payment on Android, iOS or tablet computers.

Yesterday’s initial public offering followed indecision in the company’s pricing and valuation of the offering. Originally pricing the offering in a range of $11 to $13, the higher level would have given the company a valuation of approximately $6 billion. Nevertheless, at $9 per share, the company is valued at about $2.9 billion.

The price of the offering is lower than the company’s Series D round, which was sold to J.P. Morgan Chase (JPM) and Rizvi Traverse in September of 2012 for $11.01 per share, and substantially below the $15.46 price Square had offered private investors in a fundraising effort last year.

To keep original pre-IPO investors, which include Goldman Sachs (GS) and JP Morgan Chase & Co., the company guaranteed investors a “ratchet”, which gives the early investors the possibility of converting their private shares into public shares. Due to this feature, Square wound up issuing extra shares to those investors ensuring them a 20 percent return on their investment and further diluting Square stock with an additional 10.3 million shares which represents 3 percent of the company’s outstanding stock.

Jack Dorsey, Square’s founder and Chief Executive, who is also the Chief Executive of Twitter, said in an interview after the offering that, “We have a great beginning” adding that, “I don’t see negativity as necessarily something that detracts from our work. I want to get back to a steady state and back to business,” he reiterated that Square’s strategy was “to continue to save people trips to the bank. We’re not going out there to say we’re getting rid of the banks or card networks. We’ve just put a much cleaner face on that infrastructure.”

Approximately 10 percent of the offering was allocated to retail investors, while institutional investors bought 90 percent. The stock’s rally yesterday was in large part due to individual investors that did not get in on the initial offering. Square’s stock continues to gain in this morning’s premarket, indicating optimism for the company and the possibility that the initial offering was at a discount to the company’s estimated valuation.

Other News About SQ

Square IPO Confirms That Talk of a Correction by Year End Is Just Noise

According to some market pundits, yesterday’s gains for the Square IPO is evidence the market will continue higher towards the end of the year.

Square IPO May Prove to Be Turning Point for Technology

Initial offering shows that the public is still interested in technology startups.

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Published on Nov 20, 2015
By Jay Hawk
Jay Hawk
Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.

Copyrighted 2016. Content published with author's permission.

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